Tablet wars ahead in 2012–but it will be Google versus Amazon with Apple on the sidelines counting its profits

Some analysts and investors who read Apple’s (AAPL) December quarter earnings report yesterday are now anticipating the big fight in the tablet market between Apple’s iPad and Amazon.com’s (AMZN) Kindle Fire.

But there’s an increasing wave of opinion that argues these investors are looking at the wrong war. (For my take on Apple’s earnings see my post http://jubakpicks.com/2012/01/25/apple-is-still-a-cheap-stock/ )

Oh, there’s going to be a battle, no doubt about it, but the first combat, this view says, will be between Amazon and Google (GOOG). I know that Amazon’s Kindle runs Google’s Android operating system and that it’s therefore logical to think of the two companies as allies.

It was certainly intended to work out that way, but Google isn’t getting nearly the share of the tablet market for its apps that it thought it would from Amazon. And with other tablet hardware companies set to follow on Amazon’s model, it looks like Google will have to launch its own Android-based tablet or get less of this fast-growing market than it wants.

Here’s the problem from Google’s point of view. Read more

Apple (AAPL) reported December quarter (first quarter fiscal 2012) earnings yesterday after the New York close that blew away Wall Street estimates. And then the company raised guidance for the March 2012 quarter. The stock is up 6.9% as of 11:45 a.m. in New York in a generally lackluster U.S. market.

Should you buy? Well, the stock is still very cheap—especially once you subtract the company’s nearly $100 billion in cash. But you might get a better entry point sometime in the next three months—the March quarter is always weak for Apple. And while that weakness is absolutely predictable, many investors still sell on that worry. The only reason to rush in today is if you think that Apple will do something soon with its cash—like pass out a special dividend—that would send the stock up even further in the short-term.

Earnings for the December quarter of $13.87 a share handily beat Wall Street expectations of $10.07 and the company’s guidance of $9.30. (You might think that the company set guidance so low to make sure that new Apple CEO Tim Cook would be able to report a huge surprise to make up for Apple missing Wall Street projections last quarter, Cook’s first as CEO after the resignation of Steve Jobs. If you think that, I wouldn’t argue with you.)  Revenue for the quarter came in at $46.3 billion, well above Wall Street projections for $38.8 billion in revenue.

I can’t find a product segment that disappointed in the quarter. Read more

Sell F5 Networks (FFIV)

A great earnings report from F5 Networks (FFIV) after the close on January 18 that has taken the stock within hailing distance of my June target price of $124.

I’m going to sell F5 Networks out of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ today, January 20—not because of anything wrong with the earnings report—it was great—but on rising expectations among investors. I think F5 Networks has hit the point that many momentum plays hit where investors start hoping for more—and pricing in more—than it’s reasonable to expect the company to deliver.

I have a 56.6% gain on these shares since I added them to this portfolio on September 28, 2011.

For the first quarter of fiscal 2012 F5 Networks reported earnings of $1.03 a share. That was two cents a share better than the Wall Street consensus. Revenue climbed by almost 20% from the first quarter of fiscal 2011 to $322.4 million. That was slightly above the consensus expectation of $319.06 million. For the second quarter of fiscal 2012, the company raised its guidance to earnings of $1.05 to $1.07 a share. The current Wall Street earnings estimate calls for $1.05 a share.

Absolutely nothing wrong with these numbers, especially in the seasonally weak first quarter —except that they mark a real decline in the momentum for this stock. Read more

China moves to ban incandescent bulbs–and LED stocks jump, prematurely I think

ina today announced that it will join the European Union and the United States and phase out incandescent light bulbs.

And that has led to a big pop this morning in the shares of companies that produce alternative lighting systems or that make the equipment used to produce such alternative as LEDs. That’s perhaps premature since many of these companies are still reporting big drops in orders from their customers in the consumer electronics sector.

Starting in October 2012 China will ban the import and sales of 100-watt and higher incandescent bulbs. The ban goes into effect for 60-watt bulbs in October 2014 and on 15-watt bulbs in October 2016, according to the National Development and Reform Commission. China is the world’s largest producer of both incandescent and energy-saving bulbs such as LEDs. In 2010 China produced 3.9 billion incandescent bulbs of which 1.1 billion were sold domestically.

The goal is to increase energy efficiency and reduce pollution, especially the production of greenhouse gases, in China. Light accounts for about 12% of China’s total electricity consumption. Once the phase out is in place, China estimates that it could reduce carbon dioxide emissions by 48 million tons annually. (The United States is set to ban the production and sale of incandescent bulbs starting in 2012. The European Union decided in 2008 to phase out the bulbs by 2012.)

Stocks popping on the news this morning include Cree (CREE), a maker of energy efficient lighting, up 7.4% as of 1 p.m. New York time, SemiLEDs (LEDS), a maker of LED chips and components, up 30.1%, and two companies that make the equipment used to produce LEDs, Veeco Instruments (VECO) up 8.6%, and Aixtron (AIXG), up 10.3%.

All these stocks have been thoroughly beaten up lately, which is one reason that they’re jumping today. Aixtron, for example, trades at $16.48 today after this pop, but the 52-week high is $44.96.

And that’s also what gives me pause. These stocks have been crushed because orders from existing customers in the consumer electronics and solar industries have fallen off a cliff. (The same equipment is used to produce solar cells and LEDs.) For its third quarter, for example, Aixtron reported a 49% drop in revenue from the second quarter of 2011 and a 77% drop in order rate. LED prices have been falling—Credit Suisse projects a $10 drop in the price of a LED bulb by the end of 2013. Eventually those lower prices—and the incandescent bans—will drive a new level of demand but in the meantime falling prices and scaling back of subsidies in China have meant that LED makers have seen revenue fall—and that has resulting in falling orders, especially from China and Taiwan, starting in the second quarter of 2011.

A normal order bust cycle takes anywhere from two to four quarters to run its course, Credit Suisse estimates. That would put a visible upturn in equipment orders in the middle of 2012, Credit Suisse estimates.

In other words the news out of China today is indeed good for these stocks, but a pop of this size may be a bit premature.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did own shares of Aixtron as of the end of June. For a full list of the stocks in the fund as of the end of June see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

Update F5 Networks (FFIV)

When you’re a fast growing stock with a price-to-earnings ratio of 36 on trailing 12-month earnings, you’d better beat expectations.

Which is exactly what F5 Networks (FFIV) did when it reported earnings for the fourth quarter of fiscal 2011 on October 25. Earnings of $1.06 a share were 8 cents better than the Wall Street consensus. (F5 Networks is a member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ )

Revenue climbed by 24% year-to-year and earnings by 40%.

For the December quarter, the company issued guidance for earnings of 99 cents to $1.01 a share and revenue of $315 million to $320 million. That roughly matched Wall Street expectations for $1.01 a share in earnings and $320 million for revenue. Not bad guidance for a quarter that has led to lower projections by some technology companies.

Somewhat unusually in the current economic climate, F5 Networks talked more than a quarter ahead in its conference call. Read more